Joe Raedle/Getty Images
Key Takeaways
- Gas prices are likely to have lowered overall inflation and caused a drop in the key inflation measure. This will show that consumer prices were flat in March.
- The reprieve is likely short-lived: economists expect President Donald Trump's campaign of imposing tariffs on trading partners will push consumer prices. They expect inflation data to reflect these effects as early as may.
- The Federal Reserve had been trying to bring core inflation to a rate of 2% annually and was making progress before the tariffs.
Tariffs are expected to raise the cost of living, but Wednesday's report on inflation and spending will likely show little evidence of that.
The Bureau of Economic Analysis should release the Personal Consumption Report on Wednesday. It will likely show that the cost of living stayed flat in March after rising 0.3% in February, according to the Bloomberg consensus forecast reported by Wells Fargo Securities. This would mean a 2.2% rise over the last 12 month, the lowest rate of inflation since September.
The Consumer Price Index released earlier in the month showed a similar trend. Gas prices were a major factor in the Consumer Price Index, which was released earlier this month.
Inflation may still be on the way
However, it is likely that the inflation respite will be short-lived.
Economists believe that the tariffs imposed by Donald Trump in April will cause consumer prices to rise, as retailers pass on the costs of import taxes. RBC economists expect the surge in inflation to be reflected in the May data, which will then be reported in June.
If the report on Wednesday matches expectations, then it will show how well the economy was doing before Trump’s trade conflicts shook up the system. The overall inflation rate was down, but economists expected “core” inflation to be only 0.1% higher over the past month, excluding volatile food and energy prices.
This is down from 0.4% in Feburary, resulting in a 2.6% rise over the past year. This would be the lowest core inflation rate since March 2021. It marks a milestone in Federal Reserve’s effort to get it down to 2%.
The Fed bases its 2% target on Core PCE, since food and energy can fluctuate in price for reasons that are not related to long-term inflation trends. Cooling core inflation is usually a positive sign for Federal Reserve officials, and would encourage central bankers lower their benchmark interest rates.
Fed officials have waited to see what Trump’s trade wars would bring about before making any decisions.
